Thu Apr 26th, 2007 at 08:15:58 AM EST
As Fran noted this morning, the FT isn't impressed by the state of the carbon trading market:
The burgeoning regulated market for carbon credits is expected to more than double in size to about $68.2bn by 2010, with the unregulated voluntary sector rising to $4bn in the same period.
The FT investigation found:
- Widespread instances of people and organisations buying worthless credits that do not yield any reductions in carbon emissions.
- Industrial companies profiting from doing very little – or from gaining carbon credits on the basis of efficiency gains from which they have already benefited substantially.
- Brokers providing services of questionable or no value.
- A shortage of verification, making it difficult for buyers to assess the true value of carbon credits.
- Companies and individuals being charged over the odds for the private purchase of European Union carbon permits that have plummeted in value because they do not result in emissions cuts.
Today's Editorial Comment calls for the introduction of carbon taxes rather than markets:
While short-term politics favour markets, taxes would be better in the long term, because industry needs certainty for investments years hence. A government committing to painful taxes signals the seriousness of its intentions.
Both carbon taxes and markets put undue burden on the poor. Governments should counter such regressive carbon taxes by lowering taxes on labour. Yet most of the political appeal of markets is that they hide the true costs to consumers. That is why carbon markets exist in the first place. For this reason it is unlikely that governments would offset the invisible burden of markets by changing visible taxes.
Smart market design could overcome most problems with tradeable permits: price caps could prevent undue harm to the economy; and intelligent regulatory regimes could prevent other forms of gamesmanship. Yet markets are bound to be more complicated than taxes. When in doubt, keep it simple. Markets for carbon are potentially good. But taxes would be better.
I have a better idea than lowering taxes on labour: increase social support payments to take account of the new taxes. Otherwise, that sounds like the most sensible way of dealing with it. There should be no exclusions for airlines or anyone else and countries who refuse to participate should be subject to trade sanctions to level the playing field.